WCS oil price falls as Midwest refineries complete maintenance

The price of Western Canadian Select (WCS) crude oil has fallen as large refineries in the Midwest complete planned maintenance, leading to a reduction in the amount of crude oil processed, according to the U.S. Energy Information Administration. WCS is a crude oil that’s typically produced in the Midwest and has a lower price than other crude oils because of quality differences, but as WCS production rises and pipeline capacity tightens in Western Canada, WCS prices have plunged compared to crude oil benchmarks such as Brent.

WCS is classified as a relatively heavy, sour grade of crude oil and often priced lower than Brent. Heavy, sour grades of crude oil require more processing to produce gasoline. WCS must be blended with a lighter oil to flow smoothly in pipelines, and this increases cost.

In mid-October, the price difference between WCS and Brent reached its widest spread since 2012, with WCS nearly $60 per barrel less than Brent. On Nov. 30, the spread was $36.25 per barrel, with the WCS spot price falling to $21.93 per barrel.

The planned maintenance at large refineries in the Midwest has led the four-week rolling average of crude oil inputs for the week ending Oct. 26 to fall to 3.1 million barrels per day, and this was the lowest four-week average since 2015, according to the EIA. Refinery usage for the week ending Oct. 26 was 73%, the lowest use level in the region at any point since 1985.

Pipeline transportation constraints in Western Canada have led to more crude oil being shipped by rail, which is more expensive than being delivered by pipeline. Canada has exported more than 80% of its crude oil to the United States annually since 2014, and rising production in Western Canada has increased beyond the ability to export the crude oil.

Crude oil production in Canada increased by about 300,000 barrels per day to nearly 4 million barrels per day in 2017, from 2016. Oil sands development accounted for 64% of the production in 2017, according to Government of Canada estimates. Oil sands production usually has higher upfront capital costs but tend to have lower operating costs and can continue to produce crude oil when the prices are low.